BILL ANALYSIS Ó SB 804 Page 1 Date of Hearing: June 12, 2012 ASSEMBLY COMMITTEE ON HEALTH William W. Monning, Chair SB 804 (Corbett) - As Amended: June 6, 2012 SENATE VOTE : 22-13 SUBJECT : Health care districts: transfers of assets. SUMMARY : Requires health care districts to include, in an agreement transferring more than 50% of the health care district's assets, the appraised fair market value of any asset transferred to a nonprofit corporation, as defined. Further requires the appraisal of the fair market value to be performed within the six months preceding the date on which the district approves the transfer agreement. Specifically, this bill : 1)Requires health care districts to include, in an agreement transferring more than 50% of the health care district's assets, the appraised fair market value of any asset transferred to a nonprofit corporation. 2)Requires the fair market value to be appraised by an independent consultant with expertise in methods of appraisal and valuation and in accordance with applicable governmental and industry standards for appraisal and valuation of any asset transfer. 3)Requires that the appraisal be performed within the six months preceding the date on which the district approves the transfer agreement. 4)Requires the public to be provided with the following information when the public is asked to approve the transfer by vote: a) Assets proposed to be transferred; b) The appraised fair market value; and, c) The full consideration that the district is to receive in exchange for the transfer. EXISTING LAW : 1)Establishes the Local Health Care District Law which SB 804 Page 2 authorizes communities to form special districts to construct and operate hospitals and other health care facilities to meet local needs. 2)Authorizes a health care district to transfer, for the benefit of the communities served by the district, any part of its assets of the district to one or more nonprofit corporations to operate and maintain the assets. Prior to the district transfer, requires the district board to submit a measure to the voters of the district proposing the transfer. 3)Authorizes a district to transfer, at less than fair market value, any part of the assets of the district to one or more nonprofit corporations to operate and maintain the assets, if the transfer benefits the communities served by the district. Requires that for a transfer of 50% or more of a district's assets to be deemed to benefit a district's communities, a district must: a) Fully discuss the transfer agreement in at least five properly noticed public meetings before the district board's decision to transfer the assets; b) Provide in the transfer agreement that the district must approve all initial board members of the nonprofit corporation and any subsequent board members as may be specified in the transfer agreement; c) Provide in the transfer agreement that specified assets are to be transferred back to the district upon termination of the transfer agreement; d) Commit the nonprofit corporation, in the transfer agreement, to operate and maintain the district's health care facilities and its assets for the benefit of the communities served by the district; and, e) Require, in the transfer agreement, that any funds a corporation receives from the district be used only for specified activities that would further a valid public purpose if undertaken directly by the district. 4)Requires the district to report to the California Attorney General (AG), within 30 days of any lease of district assets to one or more corporations, the type of transaction and the entity to whom the assets were leased. FISCAL EFFECT : None COMMENTS : SB 804 Page 3 1)PURPOSE OF THIS BILL . According to the author, this bill is intended to provide the public with more information about the value of district assets that are proposed to be sold or transferred to one or more corporations for less than fair market value. The author argues that unfortunately, in too many cases, these transfer agreements end with assets being transferred out of the district to the benefit of the contracting private corporation and to the detriment of the local community. The author maintains that of the 85 districts that have formed since 1945, almost a third have closed, leased, or sold their hospitals. Some, according to the author, have declared bankruptcy and many have changed or expanded their historic role as providers of acute care. This bill, the author asserts, addresses the growing concern that some districts are entering into contracts that reduce the district's assets and financial security. 2)DISTRICTS . Districts were formed under state law to meet local health needs not satisfied by other health care resources or government programs in a given geographical area. Districts formed pursuant to state law are financed by assessments on real and personal property within the district. A 2006 report published by the California HealthCare Foundation found that 85 health care and hospital districts have been formed in California since the first hospital district enabling legislation was passed in 1946. Districts operate medical facilities, including hospitals, public health clinics, and skilled nursing facilities. Some also provide community-based education programs to the residents of their districts. Given the volatile health care market in recent decades, districts have contemplated service changes, leasing arrangements, and affiliations with both nonprofit and for-profit health care corporations as means or providing health care services to residents. Responding to changes in health care delivery, districts explore economic and organizational alternatives, including leasing or selling their assets to nonprofit corporations or even to for-profit companies. If a district wants to transfer 50% or more of its assets to any corporation, the transfer needs majority-voter approval from the district board. 3)SUPPORT . The California Nurses Association (CNA) writes in SB 804 Page 4 support that this bill gives the public important information about the value of health care district assets that are proposed to be transferred to an outside entity for less than market value. CNA maintains that this information is crucial because health care district assets are public and are owned by the residents of the health care district. 4)PREVIOUS LEGISLATION . a) SB 134 (Corbett) of 2011, was substantially similar to the provisions of this bill. SB 134 was amended to delete these provisions in the Assembly. b) SB 1240 (Corbett) of 2010, would have imposed conditions on contracts between districts and other entities to operate one or more health facilities owned by the district. SB 1240 was vetoed by Governor Arnold Schwarzenegger, who stated that SB 1240 would have limited the discretion of a district when entering into a contract with another operating entity and would have created the unintended consequence of reducing the incentive for such arrangements when hospitals are struggling to remain open. c) SB 1351 (Corbett) of 2008, would have required voter approval before a district can transfer, for the benefit of the communities served by the district and in the absence of adequate consideration, any part of the assets of the district to one or more nonprofit corporations to operate and maintain the assets, as opposed to 50% or more of the district's assets. SB 1351 would have also expanded the AG's ability to review and comment on proposed transfers and prohibited a district from relinquishing its membership on the board of a nonprofit corporation to which the district has transferred or leased its assets without a vote of the district electorate. SB 1351 was vetoed by Governor Arnold Schwarzenegger, who stated that he could not support placing additional restrictions on a district, especially when they are elected by, and accountable to, their local community. d) SB 460 (Kelley), Chapter 18, Statutes of 1998, permitted, until 2001, a district to transfer at fair market value its assets to for-profit corporations, as specified. SB 804 Page 5 e) SB 1508 (Figueroa), Chapter 169, Statutes of 2000, extended the authority for districts to transfer or lease assets to a for-profit until January 1, 2006. f) AB 1131 (Torrico), Chapter 194, Statutes of 2005, extends the January 1, 2006 sunset date to 2011, permitting districts to transfer or lease assets to for-profit corporations, as specified. g) SB 1771 (Russell and Kopp), Chapter 1359, Statutes of 1992, defines the terms and conditions under which a district may transfer, without adequate consideration, any part of its assets to one or more nonprofit corporations, including that the transfer must be for the benefit of the community served by the district, provide for the transfer back to the district of the assets at the end of the lease, and be approved by a majority of the voters in the district if the transfer is of 50% or more of the district's assets. 5)DOUBLE REFERRAL . This bill is double referred. Should it pass out of this committee, it will be referred to the Assembly Committee on Local Government. REGISTERED SUPPORT / OPPOSITION : Support California Nurses Association Opposition None on file. Analysis Prepared by : Tanya Robinson-Taylor / HEALTH / (916) 319-2097